What are the uses of securities premium?
The Securities Premium Reserve Account can be used only for the following five purposes:
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To issue fully paid bonus shares to the extent not exceeding unissued share capital of the company.
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To write-off preliminary expenses of the company.
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To write-off the expenses of, or commission paid, or discount allowed on any securities of the company.
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To pay premium on the redemption of preference shares or debentures of the company.
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For purchase of its own shares (i.e., buy back of shares).
Explanation
The textbook clearly lists five specific purposes for which securities premium can be used. These are strictly regulated by law. Students should remember all five uses as this is a frequently asked question in board examinations. The key point is that the use of securities premium is legally restricted to these purposes only.